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Monday, 18 February 2013

Is the sustainability of the Dutch pensions turning into a clash between the generations?!

The Netherlands is one of the countries that is currently struck by a ‘grey tidal wave’, consisting of the relatively large and wealthy generation of baby-boomers that is entering the retirement phase of their lives.

This generation, like any other generation, wants to maintain as much as possible their acquired rights and life-style during their retirement.

In The Netherlands, the working generation is responsible for funding the so-called first pillar of their pensions: the state-paid AOW (i.e. ‘general retirement law’). Besides that, most retirees also collected a private pension during their working life, that is managed by the pension funds and pension insurers of their industry and/or company: the second pillar. Until now everything seems normal.

However, the baby-boom generation is the first in a series of relatively large generations that will all reach their retirement age within the next 25 years, thus leaving an ever smaller working population behind. When you look at the population pyramid of The Netherlands of 2012, you immediately recognize the problem:

The current population pyramid in The Netherlands
Picture courtesy of
Click to enlarge
When so many people are going into retirement for such a prolonged period, it will be extremely challenging for the labour market and the employers to keep funding this; even in a bull market with high productivity /efficiency and a high demand for products and services.

However, The Netherlands is currently in the sixth year of the credit crisis, which I call straightforwardly a depression: there is massive excess production of goods and services, productivity/efficiency is relatively low and demand is going nowhere. On top of that, the chances for this to change soon are minimal:

·         The retail industry is almost in a coma, due to:
o     The current collapse in demand, as a consequence of a total lack of consumer confidence;
o     The bloody battle for margin between the small retailers and the large shopping chains;
o     The excess supply of shops in almost every category of goods and services;
o     As a consequence, the soaring number of defaults in the retail business;
o     The soaring vacancy of shopping space, leaving its scars on the Dutch shopping centers;

·         The building and construction industry for commercial and residential real estate is currently also at its last gasp:
o    The demand for Commercial Real Estate (CRE) is anemic in The Netherlands and structural vacancy of CRE is currently at about 17%; communities and project developers in The Netherlands are still developing some new CRE against their better judgment, but they probably build for future vacancy;
o    The demand for new rental houses imploded, due to the fiscal measures to the tune of €2 bln, that hang above the heads of the building cooperatives;
o    The demand for new owner-occupied houses is currently ‘virtually non-existent’, due to the lasting depression and continuing price-drops on the Dutch housing market;

·      Although the Dutch exports of goods, services and agricultural produce improved slightly, the domestic demand stays far behind;

·       Besides that, the Dutch export itself is slowly deteriorating in character from supplier of mainly home-produced goods, produce and services to ‘being China’s mailman’
o   from high-quality, high-capital exports to an exporter of relatively cheap Far Eastern goods;

·       The Netherlands is also suffering from the fact that it didn’t invest sufficiently in its manufacturing industry and in an integral industrial policy, but instead gambled on the role as ‘trade and distribution behemoth’;
o   Although the development of the so-called ´top-industries´ could have been a good start of a Dutch revival, it seems that this initiative is slowly dying from lack of pace and excess austerity by the current cabinet.

The result of this series of setbacks for the Dutch pension system, the current labour population and the current retirees is that everybody knows that the shit is about to hit the fan:

·         The current workers and especially the current generation of youngsters know that an ever larger part of their salary will be used for the AOW-payments and supplementary pensions in the coming years, while at the same time their own pension seems more uncertain than ever;

·         The current retirees know that the younger generations and the government are about to take a bite out of their ‘luxurious’ pensions. They try to defend what they have by making a lot of noise in the media and selling ‘sad stories’ to everybody that wants to hear them;

·         The Dutch politicians and the labour unions are currently sitting on the fence:
o    They know that the youngsters must receive a decent pension too in the distant future;
o    However, the older (pre-) retirees are their natural grassroots and they have a lot of interests in all kinds of parties and lobbies that the youngsters are not (yet) attached to: labour unions, political parties, pension funds and employer’s organizations;
o    As everybody is preaching to their own converts, there is very little understanding and cooperation between the different age groups.

With ‘50Plus’, the elderly have a ‘specialty-party’ in the Dutch parliament, led by the charismatic Henk Krol, ex-editor-in-chief of the gay newspaper ´Gaykrant´.

Krol is somebody who knows extremely well how to manipulate the media and his peers in the Second Chamber of Parliament. His party, a dark horse during the last elections, has currently reached a level of 24 virtual seats out of 150, making it a force to be reckoned with.

This is the perfect recipe for a clash-of-generations…

The youngsters are ventilating their dissatisfaction with the current situation via organizations for youngsters, like the special youngster- branches of the labour unions and political parties.

Nevertheless, the voice of the elderly is still heard much louder in the political arenas. Their message contains some ‘false notes’ about soaring poverty among the elderly, while in reality the elderly are still the most prosperous generation in The Netherlands.

This alienates the youngsters, who feel themselves the victims of this situation: they feel the burden of the growing pension payments, but probably won’t enjoy the yields of their efforts at the moment of their retirement.

My take on this conundrum: you can’t make an omelet without breaking an egg! There is no way that the current, luxurious pension system can be kept upright in the current crisis, combined with the diminishing numbers of the labour population. The population pyramid is crystal clear about this.

Unless a dramatic change in productivity takes place, due to new inventions and developments in the world, the pensions for the current retirees must be cut to a certain level: the first, as well as the second pillar. It might be necessary to cut both the first and the second pillar of the Dutch pensions for at least 10-20%  to keep the system viable.

Like a true social-democrat, I would like to add that it seems fair that the higher (and especially gold-plated) pensions of the highest income categories should carry the highest burden. These people take the biggest chew out of the pension funds and besides this, they are very able to collect supplemental pension rights through life-insurances and annuities.

The lowest incomes, however, often only enjoy their AOW-benefits and a very small supplemental pension; it would not be fair to let them do most of the burden-sharing.

It would be disgraceful, when the current generation of workers-below-forty must foot the whole bill for the fact that politicians are too shy to take a brave decision, concerning the pensions of the current and near future-retirees. Also the labour unions should know their responsibilities towards the future generations, although these are not their grassroots currently.

This would be the best way to avoid a future clash of generations.

Unfortunately, I doubt if the current generation of politicians and labour union leaders have the balls to act upon this political challenge.


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